Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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A 15.7% Yield with a Growth
Engine |
Published:
May 14, 2008
This closed-end fund mimics the
tech-rich Nasdaq 100 Index. The fund's holdings include tech giants
Apple, Microsoft, Qualcomm, Cisco, Google and Intel. While the tech
sector is not known for its generous dividends, QQQX boosts income by
writing call options on the Nasdaq 100 Index. In total, QQQX has
received nearly $6 million in premiums from these options, compared to
total assets of $206 million.
For the last eight quarters, QQQX has paid out a steady dividend of
$0.4625 per quarter, or $1.85 annually. At current prices, that
represents a rich yield of 15.7% ($1.85/$11.77). Investors should note
that in 2008, 85% of the distributions have come from return of capital.
That means the fund has had to dig into its own equity to keep the
dividend at the current rate. Its called "return of capital" because the
fund is essentially returning your own money. The fund has a fairly
reasonable expense ratio of 1.05%, which takes a small bite out of total
returns.
Investors should also be aware that tech bellwethers are known for their
potential for strong gains, but also their high volatility. For
instance, the Nasdaq carries an average beta of about 1.2 (as measured
against the S&P 500) over the past five years. This means the index is
roughly 20% more volatile than the S&P. As a group, they have not been
immune to the economic downturn. While the tech sector did outperform
the broader S&P 500 over the last 12 months, the Nasdaq has still lost
-27.9% versus the S&P's -34% decline.
Still, the largest tech stocks, as measured by the Nasdaq 100, have led
the market year-to-date, with a gain of +17.5% against the S&P's +1.8%.
Also helping the tech sector is the fact that many of these companies
carry little or no debt. As credit remains tight, the sector has a clear
advantage by not needing to rely on the credit markets.
This has helped QQQX perform well. The fund has delivered total returns
of +35.9% year-to-date. This return has been boosted by the fund's
option-writing strategy. During volatile markets, this strategy is
especially lucrative. With higher volatility, the amount QQQX receives
from a writing a call option increases. This is because higher
volatility means there is more of a chance the call will be exercised.
Therefore, the premium demanded is higher and the willingness of an
investor to pay that premium is also increased.
The options writing strategy also serves to cushion QQQX in down
markets. When the market falls, the equities within its portfolio will
also fall. However, the calls written are also less likely to be
exercised -- meaning the fund gets to earn the premium on the calls
without having to supply the underlying shares.
Still, as the market returns to a more normal trading range, the fund
may be harder pressed to produce the same level of option income, which
may pressure distributions. Despite rising nearly +30% in 2009 and
returning almost 10 percentage points more than the Nasdaq 100 Index
over the last year, QQQX still trades at a -4.9% discount to its net
asset value. This is on the low end of its historical average discount,
but is still in an enviable range.
Good investing!
[http://www.streetauthority.com/includes/editor-profiles-hy.htm]
Disclosure: Carla Pasternak does not own shares of
QQQX.
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Investing Doesn't Get Any Easier Than This |
Stock picker Amy
Calistri's strategy is as simple as investing gets -- just one idea
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Go here to learn about Amy's simple investing strategy.
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